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2–1
CHAPTER 2
UNDERSTANDING THE ISSUES
1. (a) Jacobson has a passive level of own-
ership and in future periods will record
dividend income of only 15% of Bil-
trite’s declared dividends. Jacobson will
also have to adjust the investment to
(d) Jacobson has a controlling level of
ownership and in future periods will add
100% of Biltrite’s net income to its own
net income. All (100%) of Biltrite’s nom-
inal account balances will be added to
3. (a) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
(b) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………….. $1,200,000 $960,000 $240,000
4. (a) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ……………………………….. $1,000,000 $1,000,000 N/A
(b) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ……………………………….. $ 500,000 $ 500,000 N/A
Fair value of net assets excluding goodwill . 850,000 850,000
5. (a) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………….. $1,000,000* $800,000 $200,000
2–3
(b) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………….. $770,000** $600,000 $170,000*
Fair value of net assets excluding goodwill . 850,000 680,000 170,000
6. Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Ch. 2—Exercises 2–4
EXERCISES
EXERCISE 2-1
Santos Corporation
Pro Forma Income Statement
Ownership Levels
10%
30% 80%
Sales ……………………………………………………………… $700,000 $700,000 $1,150,000
Cost of goods sold …………………………………………… 300,000 300,000 600,000
Gross profit …………………………………………………….. $400,000 $400,000 $ 550,000
EXERCISE 2-2
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ………………………………………….. $530,000 $530,000 N/A
Fair value of net assets excluding goodwill
($280,000 book value + $20,000) ………………… 300,000 300,000
Goodwill …………………………………………………………. $230,000 $230,000
1. (a) Cash ………………………………………………………………………. 20,000*
Accounts Receivable ………………………………………………… 70,000
Inventory ………………………………………………………………… 100,000
2–5 Ch. 2—Exercises
Exercise 2-2, Concluded
(b) Glass Company
Balance Sheet
Assets
Current assets:
Cash ………………………………………………………. $ 30,000
Accounts receivable …………………………………. 120,000
Inventory …………………………………………………. 150,000 $ 300,000
Property, plant, and equipment (net) ………………… 520,000
2. (a) Investment in Plastic ……………………………………… 530,000
Cash ………………………………………………………. 530,000
EXERCISE 2-3
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ………………………………………….. To be determined N/A
Fair value of net assets excluding goodwill ………….. $580,000* $580,000
Goodwill
Gain on acquisition
Ch. 2—Exercises 2–6
EXERCISE 2-4
(1) Investment in Paint, Inc. …………………………………………………. 980,000
(2) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ……………………………………. $980,000 $980,000 N/A
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Fair value of subsidiary ………….. $980,000 $980,000 N/A
Less book value of interest acquired:
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($250,000 fair –
$200,000 book value) …………. $ 50,000 debit D1
Depreciable fixed assets
2–7 Ch. 2—Exercises
Exercise 2-4, Concluded
(3) Elimination entries:
Common Stock ($10 par)—Paint ………………………………………. 300,000
Paid-In Capital in Excess of Par—Paint …………………………….. 380,000
EXERCISE 2-5
(1) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ……………………………………. $ 700,000 $ 700,000 N/A
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Price paid for investment ……….. $700,000 $700,000 N/A
Less book value of interest acquired:
Common stock ($5 par) ………. $200,000
Paid-in capital in excess of par 300,000
Exercise 2-5, Concluded
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($215,000 fair –
$200,000 book value) …………. $ 15,000 debit D1
Property, plant, and equipment
($700,000 fair – $500,000
(2) Elimination entries:
Common Stock ($5 par)—Genall ………………………………………. 200,000
Paid-In Capital in Excess of Par—Genall …………………………… 300,000
EXERCISE 2-6
(1) (a) Value of NCI implied by price paid by parent
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $1,000,000* $800,000 $200,000**
2–9 Ch. 2—Exercises
Exercise 2-6, Continued
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $1,000,000 $800,000 $200,000
Less book value of interest
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($250,000 fair –
$200,000 book value) …………. $ 50,000 debit D1
Land ($200,000 fair –
(b) NCI = 4,000 shares at $45
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $980,000 $800,000 $180,000*
Exercise 2-6, Continued
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $980,000 $800,000 $180,000
Less book value of interest acquired:
Common stock ($5 par) ………. $100,000
Paid-in capital in excess of par 150,000
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($250,000 fair –
$200,000 book value) …………. $ 50,000 debit D1
Land ($200,000 fair –
$100,000 book value) …………. 100,000 debit D2
(c) NCI = 20% of fair value of net tangible assets
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $964,000 $800,000 $164,000*
Exercise 2-6, Continued
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $964,000 $800,000 $164,000
Less book value of interest acquired:
Common stock ($5 par) ………. $100,000
Paid-in capital in excess of par 150,000
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($250,000 fair –
$200,000 book value) …………. $ 50,000 debit D1
Land ($200,000 fair –
$100,000 book value) …………. 100,000 debit D2
(2) Elimination entries:
(a) Value of NCI implied by price paid by parent
Common Stock ($5 par)—Commo (80%) …………………………… 80,000
Paid-In Capital in Excess of Par—Commo (80%) ……………….. 120,000
Exercise 2-6, Concluded
(b) NCI = 4,000 shares at $45
Common Stock ($5 par)—Commo (80%) …………………………… 80,000
Paid-In Capital in Excess of Par—Commo (80%) ……………….. 120,000
Retained Earnings—Commo (80%) ………………………………….. 200,000
Investment in Commo Company …………………………………… 400,000
(c) NCI = 20% of fair value of net tangible assets
Common Stock ($5 par)—Commo (80%) …………………………… 80,000
Paid-In Capital in Excess of Par—Commo (80%) ……………….. 120,000
Retained Earnings—Commo (80%) ………………………………….. 200,000
EXERCISE 2-7
(1) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $646,000 $512,000** $134,000*
Exercise 2-7, Concluded
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Price paid for investment ……….. $646,000 $512,000 $134,000
Less book value of interest acquired:
Common stock ($5 par) ………. $ 50,000
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($400,000 fair –
$280,000 book value) …………. $ 120,000 debit D1
Property, plant, and equipment
(2) Elimination entries:
Common Stock ($5 par) (80%) …………………………………………. 40,000
Paid-In Capital in Excess of Par (80%) ………………………………. 104,000
Retained Earnings (80%) …………………………………………………. 296,000
EXERCISE 2-8
(1) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $500,000 $400,000* $100,000
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $500,000 $400,000 $100,000
Less book value of interest acquired:
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Equipment ($150,000 fair –
$100,000 book value) …………. $ 50,000 debit D1
(2) Investment in Delta …………………………………………………………. 350,000
Cash …………………………………………………………………………. 350,000
EXERCISE 2-9
(2) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ……………………………………. $950,000 $950,000 N/A
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Fair value of subsidiary ………….. $950,000 $950,000 N/A
Less book value of interest acquired:
Common stock ($10 par) …….. $300,000
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Land ($250,000 fair – $200,000
book value) ……………………….. $ 50,000 debit D1
Building ($700,000 fair –
Exercise 2-9, Concluded
(3) Adjustments on Craig books:
Land ……………………………………………………………………………… 50,000
(4) Elimination entries:
Common Stock ………………………………………………………………. 300,000
2–17 Ch. 2—Exercises
APPENDIX EXERCISE
EXERCISE 2A-1
Big
Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (60%)b (40%)c
Company fair value ………………………………………….. $5,000a $5,000
Determination and Distribution of Excess Schedule
Big
Company Parent
Implied Price NCI
Fair Value (100%) Value
Fair value of subsidiary ………………… $5,000 $5,000 Less book value of interest
acquired:
Common stock ($1 par) …………… $ 200
Paid-in capital in excess of par … 800
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Fixed assets ($3,000 fair –
Ch. 2—Problems 2–18
PROBLEMS
PROBLEM 2-1
(1) Investment in Downes Company ………………………………………. 810,000*
Common Stock ($1 par) ………………………………………………. 18,000
(2) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (100%) (0%)
Company fair value ……………………………………. $810,000 $810,000 N/A
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (100%) (0%)
Fair value of subsidiary ………….. $810,000 $810,000 N/A
Less book value of interest acquired:
Common stock ($1 par) ………. $ 20,000
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($80,000 fair –
$60,000 book value) …………… $ 20,000 debit D1
Problem 2-1, Concluded
(3) Roland Company and Subsidiary Downes Company
Consolidated Balance Sheet
July 1, 2016
Assets
Current assets:
Other assets ………………………………………………………………. $ 80,000*
Inventory (including $20,000 adjustment) ………………………. 200,000
Liabilities and Stockholders’ Equity
Current liabilities …………………………………………………………….. $ 240,000
Stockholders’ equity:
Common stock, par …………………………………………………….. $ 58,000
PROBLEM 2-2
(1) Investment in Downes Company ………………………………………. 630,000*
Common Stock ($1 par) ………………………………………………. 14,000
Problem 2-2, Continued
(2) Company Parent NCI
Implied Price Value
Value Analysis Schedule Fair Value (80%) (20%)
Company fair value ……………………………………. $787,500* $630,000 $157,500
Determination and Distribution of Excess Schedule
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)
Fair value of subsidiary ………….. $787,500 $630,000 $157,500
Less book value of interest acquired:
Common stock ($10 par) …….. $ 20,000
Paid-in capital in excess of par 180,000
Adjustment of identifiable accounts:
Worksheet
Adjustment Key
Inventory ($80,000 fair –
$60,000 book value) …………… $ 20,000 debit D1
Land ($90,000 fair – $40,000
book value) ……………………….. 50,000 debit D2
